Matthew Lester: Sugar tax not so sweet. Answer lies in VAT.

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Last week’s budget had many analysts guessing. With the need to raise revenue, Pravin Gordan introduced a sugar and tyre tax. In the piece below Davis Tax Committee member Matthew Lester takes aim at the sugar tax, saying if it’s a broad-based tax, it will hit nearly everything on which the poor exist. And if it’s selective and only imposed on sweets, cool drinks etc there will be huge inconsistencies in the law and its application. But then what’s Lester’s alternative? He says the difficult answer lies with VAT. – Stuart Lowman

By Matthew Lester*

I can walk my dogs through a field full of mielies and they won’t pinch even one.

That’s because dogs did not evolve to process carbohydrates and sugars. Humans are the same. Otherwise we would have a few stomachs and wouldn’t have hunted mammoths. Humans are not grazers.

But humans are clever and we learned how to grow, process, refine and market carbohydrates and sugars. Populations exploded because we all got hooked on the wrong stuff.

However, it is going to take a lot to convince me of the wisdom in the announcement in the national budget speech that sugar tax will be imposed next year.

Many are very concerned at SA’s sugar habits. But please don’t limit the argument to sugar. Refined carbohydrates are doing just as much damage.

So will a sugar tax change SA’s consumer behaviour? Not a chance in hell! A tax that competes with supermarkets placing everything that is sugar next to the tills so kids will shred their parents legs if they don’t get a fix? Don’t make me laugh!  The tax will only further impoverish parents.

If retailers were really buying into 3PL (people, planet and profit) they would put the sweeties and cool drinks at a separate counter, like the cigarettes and booze.

Virtually the only sugar free option for the poor will be canned pilchards and that price has gone bonkers.

So if sugar is to be subject to a broad-based tax it will hit nearly everything on which the poor exist.

If sugar tax is selective and only imposed on sweets, cool drinks etc there will be huge inconsistencies in the law and its application.

The banting diet proposed by Prof Tim Noakes and others more than doubles the food bill. Banting is a pastime for the rich?

Perhaps national treasury is looking at sugar tax and tyre tax because carbon tax has been delayed again so other forms of tax are needed to supplement VAT collections.

So what is the alternative?

Economists generally agree that a VAT increase would cause less strain on the economy than a personal or corporate tax increase. But they also agree that a VAT increase would have a greater adverse impact on inequality. So the VAT rate remains unchanged until we can find a way of more than compensating the poor for a VAT rate increase.

Zero rating of basic foodstuff, currently costing SA around R20 billion per annum, is a blunt instrument where the rich benefit just as much as the poor. That’s not going to do it.

We need a VAT CODESA. Lock all the players in a room, leaving their egos at the door. And they have got to sit there until they can agree a way of increasing VAT with a targeted compensatory package where the poor are better off.

  • Rhodes University Professor Matthew Lester was educated at St Johns College, Wits and Rhodes universities. He is a chartered accountant who has worked at Deloitte, SARS and BDO Spencer Steward. A member of the Davis Tax Committee investigating the structure of aspects of the RSA tax system, he is based in Grahamstown.